2023 (12) TMI 21 - AT - Income Tax

Bogus LTCG - addition u/s 68 - income arising from sale of shares which was claimed to be exempt by the Assessee denied - addition made on the basis of the report of the Investigation Wing, Kolkata and analysis of price and volume movement - AO had concluded that the investment made in purchase of shares of the Company by the Assessee was substantial and therefore, it cannot be accepted that it was a regular transaction - HELD THAT - As nothing has been brought on record by the Assessing Officer to support the conclusion in respect of the transaction undertaken by the Assessee. The addition has been made on the basis of conjecture and surmises. AO has failed to point out any defect or infirmity in the documents/explanation given by the Assessee. The Assessment Order is silent about the brokers and exit providers involved. There is no reference to any inquiry having been conducted by the AO. There is no direct evidence or circumstantial evidence to support the conclusions drawn by the AO. There is not even any allegation that the Assessee had any unaccounted income or any undisclosed source of income. Facts as emanating from material on record demonstrate that the conduct of the Assessee in the present case does not fit into the modus operandi as stated in the report of Investigation Wing, Kolkata. Assessee has offered to tax Short Term Capital Gains and speculative profit earned on 25/07/2007 earned on sale of Share of the Company in the return for the Assessment Year 2008-09. The aforesaid gains/profits were accepted without questioning the genuineness of the transactions. During the course of hearing that the Learned Authorised Representative stated that 34,401 shares of the Company are lying unsold till date. This was not disputed by the Revenue. As pointed out by the Learned Authorised Representative, in case the cost of the shares held is written off, then the short terms capital gains offered to tax would be more than overall profits made from purchase/sale of shares of the Company by the Assessee. Thus we hold that addition made by AO u/s 68 of the Act cannot be sustained. A number of judicial precedents have been referred to by the AO and the CIT(A). However, in absence of the factual support/basis, the same cannot be invoked to draw any adverse conclusion against the Assessee. As observed in the case of Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT the theory of human behaviour and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by an Assessee. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of the order passed in the name of a deceased person.
2. Validity of the reopening of the assessment under Section 148.
3. Legitimacy of the addition under Section 68 for the sale of shares and the alleged bogus nature of the transaction.

Summary:

Issue 1: Validity of the order passed in the name of a deceased person
The appellant argued that the CIT(A)-NFAC erred in passing the order under Section 250 of the Income Tax Act, 1961, in the name of a deceased person, making the order void and against the provisions of law. The appellant had informed the authorities about the reassessment proceedings being conducted on the legal representative.

Issue 2: Validity of the reopening of the assessment under Section 148
The appellant contended that the CIT(A)-NFAC erred in confirming the validity of the notice issued under Section 148 and the order passed under Section 143(3) read with Section 147. The reopening was argued to be illegal, void, and against the principles of natural justice. The appellant had disclosed all material facts necessary for the assessment during the first assessment.

Issue 3: Legitimacy of the addition under Section 68 for the sale of shares and the alleged bogus nature of the transaction
The appellant challenged the addition of INR 16,09,340/- under Section 68, arguing that the transaction of purchase and sale of shares was genuine and not bogus as alleged. It was asserted that the appellant was not confronted with the material evidence relied upon by the AO, and the assessment was framed in breach of natural justice principles. The AO had relied on irrelevant facts, conjectures, and assumptions without conclusive evidence proving the transaction as bogus.

Findings:

1. Order Passed in the Name of Deceased Person:
- The issue was not pursued further by the appellant during the hearing.

2. Reopening of Assessment:
- The issue was also not pursued further by the appellant during the hearing.

3. Addition under Section 68:
- The Tribunal found that the AO's findings were contrary to the material on record. The appellant had undertaken multiple purchase/sale transactions in shares, and the short-term capital gains were accepted in previous assessments without any doubts about the genuineness of the transactions.
- The AO did not conduct any independent inquiry and relied on the general modus operandi stated in the Investigation Wing, Kolkata's report without specific reference to the appellant's case.
- The shares were purchased and sold through the stock exchange, and the sale proceeds were received through banking channels. The AO failed to point out any defect or infirmity in the documents/explanation given by the appellant.
- The AO's conclusion that the transactions were sham and a colorable device to evade taxes was based on conjecture and surmises without any direct or circumstantial evidence.
- The Tribunal held that the addition of INR 16,09,340/- under Section 68 could not be sustained and was deleted. The appellant's grounds related to this issue were allowed.

Conclusion:
The appeal was partly allowed, with the addition under Section 68 being deleted. The Tribunal emphasized that judicial precedents should not be invoked without factual support and that the theory of human behavior and preponderance of probabilities cannot override the evidence produced by an assessee.